THE State Bank’s outlook for the economy as projected by the Annual Report 2007-08 is too stabilisation-specific and glum. The report leaves an impression that the trade-off between growth and stabilisation is not necessary. It should not be forgotten that a high growth and prudent fiscal management are not mutually exclusive.

The central bank, in its report, has projected economic growth of 3.5-4.5 per cent down from 5.8 per cent in FY08 and an inflation at 20-22 per cent in 2008-09, moderated by about 10 per cent from the average rate of the concluding year. Pakistan could and should aim to achieve above six per cent GDP growth rate without compromising on the principles of prudent financial management that keeps inflation within limits.

The government should seriously heed the recommendation of the State Bank to amend the Fiscal Responsibility and Debt Limitation Act 2005 to impose legal bar on its central bank borrowings that create many complexities, ultimately upsetting the macro economic balance.

The SBP report accepts that “SBP has given greater weight to inflation risk relative to growth”, it claims, “...due regard has been built in the policy stance so as not to stifle productive sector”.

The report goes on to explain the explicit measures taken in this regard. The fact is that whatever the intentions, the continuation of the tight monetary policy by the central bank in months ahead may end up stifling growth potential.

The stabilisation mechanisms should be in place to check wastages and mindless unproductive spending by the government. But the economy needs to be expanded at a certain rate to avoid labour retrenchments that have been reported with an economic slow down. It is also important to fight the negative economic sentiments that weaken the propensity to invest.

It is absolutely necessary to maintain high growth rate because of narrow base of the real economy or the blessings of the young population joining labour market in millions will become a liability. It could ignite social and political unrest.

”Inflation robs a person of the value of his money. Unemployment, in absence of social security network, leads to impossible situation for the vulnerable classes. Unemployment robs a person of hope, making him desperate and dangerous”, warned an economist alarmed by reports of retrenchments in a number of sectors.

The target of over six per cent growth for the year ahead, it is believed, can be realised if the government higher-ups could be persuaded to play wise with the public money. The right set of policies to energise the real economy, can pay rich dividends.

Higher support price of farm products and other pro-agriculture policies have improved the prospects of boosting agriculture economy. Industry, with depressed outlook, is a tricky area. It is time for corporate Pakistan who made it big during the high growth phase of FY04-07, to invest in the industrial expansion.

The government should, within its means, try to facilitate and incentivise local and overseas investments. There are indicators to suggest that despite heavy odds, regional investors (Malaysian for energy and Halal meat, Singapore for possible port facilities and construction, Arabs for real estate, corporate farms, media, telecom and construction, China for light engineering, mining and social and physical infrastructure projects) are willing to come here.

Besides, the international goodwill for a democratically elected government has not been translated into economic gains in terms of more space in overseas markets or better terms of trade for Pakistan’s exports by the diplomatic brigade.

The inflation card that is tossed to justify policies that led to contraction is not valid anymore. The oil price crash in the world market (from over $140 a barrel a few months back to under $50 a barrel today) and moderation of commodity prices has reduced the pressure of import bill. Many other factors, such as the tight monetary policy of the State Bank and its open disapproval of the government’s borrowing from the central bank, moderated demand and played its role in arresting the trend of price hike.

There can be disagreement over the rate by which the inflation has come down but the fact is that prices are not rising with the same zest and vigour they were six months back. The petrol in the local market has come down by over Rs20 per litre; edible oil, ghee, vegetables, poultry, rice and pulses are all comparatively cheaper today as compared to what they were two months back. The moderated demand and improved supply has improved the price situation to some extent.

The fiscal deficit of 7.4 per cent of the GDP, higher by 3.4 when compared to the targeted four per cent, was the real culprit that led to creation of imbalances and massive drawdown on foreign exchange reserves. The current account deficit of 8.4 per cent of the GDP was on account of unprecedented sudden spur in petroleum and commodity prices.

It is not enough for the people to know that the economy lost the way because of massive government borrowings. It is their right to know how that borrowed money, was spent. It is up to the elected representatives to raise the question in the national assembly. If found guilty of neglect or misappropriation, those responsible should be dealt with stringently under the law.

It is rather strange to see the same team at the helm of affairs in the ministry of finance that allowed the financial mismanagement and tolerated irresponsibility over the year under review.

For the IMF, concerned primarily with the credit worthiness of Pakistan, achieving economic stabilization is important, growth or no growth. Its position is understandable. Like any commercial lender it also ensures commercial viability of its creditor. However, for the elected government and the national institutions the impact of a policy on the people of the country should carry the highest weightage.